Fitch Affirms Chesterfield County, VA's Water and Sewer Revs at 'AAA';
Outlook Stable

March 14, 2013 12:28 PM Eastern Daylight Time

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings affirms the following Chesterfield County, Virginia's (the
county or system) outstanding revenue bonds:

--$85.1 million water and sewer revenue bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of net water and wastewater system
revenues.

KEY RATING DRIVERS

VERY STRONG FINANCIAL PROFILE: System financial performance is
exceptional as evidenced through high debt service coverage (DSC) and
robust liquidity levels, and projections indicate financial flexibility
will remain solid.

LOW DEBT AND MANAGEABLE CAPITAL PLAN: Debt ratios all around are low and
expected to remain favorable through 2017. Future capital needs appear
very manageable and are expected to be met largely through a sizeable
pay-as-you-go program.

AFFORDABLE RATES: In spite of planned annual rate hikes over the next
five years, user charges should remain well below Fitch's 2% of median
household income affordability threshold.

SOUND ECONOMIC FUNDAMENTALS: The county's combined water and wastewater
system provides an essential service to a broad, diverse and affluent
service area.

RATING SENSITIVITIES

INCREASED REGULATORY COSTS: The Environmental Protection Agency (EPA)
may modify waste load allocations for the Chesapeake Bay, potentially
increasing the system's capital wastewater costs toward the latter end
of the decade. The rating incorporates expected EPA modifications unless
they are dramatically more stringent and costly than expected.

CREDIT PROFILE

STRONG FINANCIAL PERFORMANCE EXPECTED

The system's financial profile remains very solid. Consistently sound
financial operations have led to high cash balances -- the system
typically maintains more than 1,100 days of cash on hand -- and strong
levels of DSC. Fiscal 2012 net revenues, including capital
contributions, yielded 5.5x DSC; DSC is forecast to remain above 5.0x
through fiscal 2017. Reasonable projections assume user rates will
increase annually by an average of 4% and that the annual customer
growth rate will average 1.2% over the next five years.

The average monthly residential bill for fiscal 2013, based on usage of
about 7,500 gallons per month, totals approximately $53. At 0.9% of MHI,
the monthly bill is comfortably below Fitch's affordability threshold of
2% of MHI.

LOW DEBT BURDEN AND CAPITAL COSTS

The system's debt burden is minimal, at just $446 per customer, and debt
amortization is rapid with principal payout at 51% and 100% in 10 and 20
years, respectively. The fiscal years 2013-2017 capital improvement plan
(CIP) totals $213 million, of which approximately 50% is for continued
funding of water and wastewater contingency and rate stabilization
reserves. The remaining funding is for water and wastewater replacement,
expansion and repair. All capital needs are anticipated to be funded
from pay-as-you-go sources.

The county plans to expand its Proctors Creek wastewater treatment plant
(WWTP) to 54 million gallons per day (MGD) from 27 MGD, with engineering
anticipated to commence in 2017. An EPA study designed to determine if
waste load allocations are properly set for the James River Basin -- a
Chesapeake Bay tributary -- is scheduled to be completed sometime around
2015 or 2016 or just before the planned $326 million WWTP expansion.
Based on the outcome, wastewater system capital costs could increase.

SYSTEM AND SERVICE AREA

The system treats water from a county-owned reservoir and purchases
treated water from the Appomattox River Water Authority and the City of
Richmond. The county owns and operates two WWTPs and sends wastewater
from the northern portion of the county to Richmond in exchange for the
treatment of a portion of Richmond's wastewater by a service agreement
between the two localities. A service agreement with the South Central
Wastewater Authority provides a small amount of additional wastewater
treatment capacity. All of the facilities are reportedly in good to
excellent condition and provide ample treatment capacity; the county's
water supply is reportedly sufficient through 2040. There are no
outstanding regulatory or permitting issues.

Chesterfield County encompasses roughly 446 square miles in east-central
Virginia adjacent to Richmond. The county serves approximately 102,000
water and 86,000 wastewater customers; water and wastewater customers
have each grown at a sound average of roughly 1.0% annually over the
past five years. Income levels are 15% and 38% above the state and
national average, respectively.

Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in the U.S.
Municipal Revenue-Supported Rating Criteria, this action was
additionally informed by information from Creditscope.

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